UD Sued Again..lol

[jonpop]

Blowout Cards‘ parent company, Frontline Collectibles Inc., counter-sued Upper Deck in a U.S. District Court on Wednesday, alleging that the Carlsbad, Calif.-based card company’s distribution policies introduced earlier this year are illegal under antitrust laws and have “manipulated the pricing of its products” and “have harmed and continue to harm competition for the sale of hobby sports trading cards.”

Frontline claims that Upper Deck’s limited selection of distributors in the United States and Canada — which does not include it, despite an 18-year history of selling in the industry — is an “unlawful campaign to erect artificial barriers to entry, restrict output and maintain its monopoly power” with a select few licenses (NCAA, MLS) and a roster of exclusive athletes whose autographs can only be found in Upper Deck products such as Tiger Woods, Michael Jordan, LeBron James and Landon Donovan.

In March, Upper Deck Sports Marketing and Social Media Manager Chris Carlin wrote on UD’s blog about the genesis of its program, saying “this course of action was important in order to strengthen and protect the company’s brands, while also streamlining and better-defining the company’s channels of distribution. UD crafted this program by working in collaboration with our Certified Diamond Dealers (hobby shops), Authorized Distributors and legal team.”

On Thursday, Carlin said Upper Deck declined to comment on the case.

“We cannot comment on any ongoing litigation,” he said, “[nor] can I share information regarding how we select our business partners.”

Frontline, which in its court filing readily admits its business strategy is to sell more volume at a lower profit as “of one of the largest volume and the lowest-cost providers of hobby sports trading cards,” cannot purchase UD products from any other authorized dealers, who aren’t allowed to sell to those who would re-sell the products, as part of its agreement. Specifically, it contends that “Upper Deck intended to specifically exclude or reduce competition from Frontline because Frontline was engaged in price-cutting to offer the best prices to its customers.”

Specifically, Frontline contends that Upper Deck is in violation of Sections 1 and 2 of the Sherman Antitrust Act and Section 3 of the Clayton Act with its policy.

Previously, Frontline had been a direct buyer of product from Upper Deck since it opened for business, according to the court filing. In an April meeting between Frontline’s Thomas Fish and Upper Deck, Fish was told, according to the filing, that Upper Deck would not recognize its Virginia retail location as a storefront and that enhancements would not help.

Furthermore, Frontline claims that “for pretextural and factually unsupportable reasons” Upper Deck refused to grant it status as an authorized Internet retailer, which has “severely damaged Frontline through lost sales and profits.” Frontline has been an online seller since at least 2004.

Upper Deck’s new policy, which started in April, requires that authorized distributors can only sell to UD-approved dealers, according to the filing. It also requires that those dealers maintain a permanent brick-and-mortar storefront. These dealers and the authorized Internet dealers cannot sell current products to anyone who is not an “end-consumer” within 90 days of the product’s release. Dealers found to be violating these rules — which Frontline contends are selectively enforced — risk losing their ability to sell products. The requirements to become an authorized distributor or online retailer were not disclosed to the public, though an authorized online retailer apparently must also have a storefront and be an authorized dealer, according to one familiar with the policies.

If a customer has a problem with a product which was not purchased through an authorized dealer, they will not be helped by Upper Deck — also a move that Frontline contends has hurt its business.

Frontline has requested a jury trial to decide on compensatory damages, an award triple the amount of damages, restitution and incidental damages as well as attorneys’ fees and any other relief deemed proper by the court.

The counterclaims are in response to a court filing earlier this month by Upper Deck, which requested a southern California district court judge declare that its policy doesn’t violate anti-trust laws in the wake of Blowout/Frontline’s public insistence that the policy was illegal. At that time, Blowout was given until Wednesday to respond.

[joecoolio]

I understand UD had to make some changes, but we think they went a little too aggressive with this policy. On the other hand, blowoutcards (from a Canadian stand point) continually undercuts DISTRIBUTORS within Canada, not just retailers, which makes it difficult for online retailers in Canada to gather market in Canada. I understand business is business and everyone wants to make money, but as a Canadian retailer we'd like to see more protection for us.

[centrehice]

When I lived in Canada, almost every Brick and Mortar Card Retailer had prices that were through the roof. They were the one's dictating play.

With the advent of the Internet, eBay, and a Global Marketplace, Brick and Mortar card retailers have gone the route of Travel Agencies and the Dodo Bird.

Their reach is not broad enough, and their prices are absurd.

If you can't compete, you must delete.

[Fred Bear]

I understand UD had to make some changes, but we think they went a little too aggressive with this policy. On the other hand, blowoutcards (from a Canadian stand point) continually undercuts DISTRIBUTORS within Canada, not just retailers, which makes it difficult for online retailers in Canada to gather market in Canada. I understand business is business and everyone wants to make money, but as a Canadian retailer we'd like to see more protection for us.

If the information on Frontline is correct, they are able to undercut Canadian distributors because they were dealing direct with UD and not through another distributor. I'm sure UD passes their export fees onto their clients in Canada and it probably increases the cost of the product to begin with (as with any import). I've heard that the Canadian distributors haven't always been the most honest to work with as well.

I've long thought that the real problem with UD's distribution model is that they sell to both distributors and retailers. By doing so, they creating a natural price differentiation with some retailers paying higher wholesale prices than others (i.e. distributor & UD make money through one door and only UD making money through the other). Any attempt at 'price fixing' or SRP gives a natural advantage to retailers buying direct. [As an example, if factory cost on a box is $50, a distributor may sell at $60 and a 'tier 2' retailer buying from the distributor will put on the shelf for $75. The 'tier 2' retailer is making $15 a box while the 'tier 1' retailer working direct with UD is making $25 a box or can lower his price to $65 to make the same $15. This model creates a further problem by providing the highest margins to the highest volume sellers (i.e. they only take the highest volume retailers direct). For a 'tier 2' retailer, he makes $300 on a 20-box case while a 'tier 1' retailer pulls in $500 on the same case and probably moves 2 of them (think Dave & Adam's with a retail and internet presence).]

UD has the right, just like anyone, to determine who they sell their products to and who they will provide service after the sale, I have no problem with that. When they choose to sell to a distributor, though, they give up their rights to further sales (or should). This is why Nike doesn't sue people for selling their shoes at garage sales at 'below-market' prices...

I would imagine that this will get settled before a jury gets anywhere near it because a loss for UD would likely bankrupt them or significantly hamper their existence especially since anyone who lost their ability to sell UD products would have rights to claims as well.

[Samuwry7]

I would imagine that this will get settled before a jury gets anywhere near it because a loss for UD would likely bankrupt them or significantly hamper their existence especially since anyone who lost their ability to sell UD products would have rights to claims as well.

A settlement would be the only way to save face for a company that has already lost quite a bit of it; back-peddling on the diamond dealer initiative would look pretty bad, coming so soon. But does settling on this issue still encourage suits from others?

[Fred Bear]

A settlement would be the only way to save face for a company that has already lost quite a bit of it; back-peddling on the diamond dealer initiative would look pretty bad, coming so soon. But does settling on this issue still encourage suits from others?

I think they could turn it into a positive, if they play it right. The program that Panini is rolling out includes 'approved' online box sellers as well as approved online case breakers. UD could settle with Frontline (who is probably the biggest who got cut out) and implement a program identical to Panini spinning it to talk about how they are strengthening their distribution network while improving the network to include all their 'loyal' supporters.

There are very few that could show significant enough losses to make a lawsuit against UD worthwhile unless the Frontline suit go to trial and the jury rewards additional damages (likely). That's what would make it 'rewarding' for smaller dealers to go after UD.